This month, the FCA has published its Anti-Money Laundering Annual Report (“AML Report”). The AML Report describes the FCA’s regulatory activities in the last 12 months. It also outlines the FCA’s plans over the next year. These plans appear to reflect the regulator’s acknowledgement of the need to move towards a more pro-active and pragmatic approach towards addressing financial crime risks.

Supervisory Visits

The FCA reports that during the reporting period, it approached its AML supervisory activities in two ways. The first was the Systematic Anti-Money Laundering Programme (SAMLP). This involves the FCA’s scrutiny of 14 major retail and investment banks operating in the UK, along with some of their overseas operations. To date, it has completed 11 SAMLP assessments.

The FCA reports that the SAMLP results showed that it was setting AML standards correctly. This, in turn, had led to formal recognition by some major banks that AML is an issue that requires attention from top management and a strong tone from the top. However, not all news from the SAMLP was good news. In some cases, serious AML control weaknesses were identified for which major remediation measures were required.

The second way was a programme involving regular AML inspections of mostly smaller banks assessed by the FCA as presenting higher financial crime risks. Although the AML Report does not identify the number inspections performed, the FCA reports that these inspections resulted in similar positive outcomes as the SAMLP assessments.

The FCA reports that in the upcoming year it will continue to focus more of its time and resources on those firms and activities it assesses present the highest financial crime risks.

Event-Driven Supervision – Close Monitoring, Assessment and Business Restrictions

Over the last 2 years the FCA has received information about possible AML deficiencies from referrals originating from a variety of sources (whistleblowers, law enforcement agencies and other regulators). The FCA reports that it took action in response approximately 60% of the referrals received. In most of these cases, the FCA undertook close ongoing supervision of the firm involved.

In several instances the FCA restricted a firm’s business activities or required it to appoint skilled persons to assess identified ML weaknesses and require the implementation of certain remedial measures. In 2 cases, the FCA also restricted the firm’s ability to engage in business until weaknesses in their AML controls were corrected. Overall, the FCA took supervisory action against 11 firms for AML failings.

Thematic Reviews

The FCA undertook visits to a number of consumer credit firms. It was evident that this was an area of focus for FCA, given the number of enforcement decisions issued in 2015/2016 against these types of firms. While these did not indicate a large number of AML control deficiencies, the visits allowed the FCA to better understand the types of AML risks likely to arise in this sector and how they were being managed.

Outreach via Webinars and Guidance

The FCA’s outreach activities included several webinars. It also plans to set out its expectations of consumer credit firms on financial crime in an upcoming webcast.

The FCA reports that its new Senior Managers and Certification Regime (SM&CR) is expected to ensure that overall responsibility for AML is discharged by someone senior enough to ensure that the firm as a whole is meeting all of its financial crime obligations. The FCA anticipates that this will also result in a clearer focus on AML issues and more support from firms for their financial crime functions and MLROs.

Response to the Panama Papers Leaks

The FCA is a member of the UK Government’s taskforce investigating the Panama Papers. The FCA reports that as of June 2016, the work being undertaken by the taskforce was still in its early stages.

Focus on Working Smarter Not Harder

The FCA reports that in a recent assessment, the International Monetary Fund raised concerns about how the FCA was supervising some banks. The FCA also acknowledged the feedback given in response to the UK’s Anti-Money Laundering Regime by the Better Regulation Executive (BRE) that:

FCA’s supervisory approach was not consistent with a risk-based approach; and

Some of its inspection staff had a ‘checklist’ mentality and preconceptions about what they expected to see in a firm.

The FCA has committed to addressing these concerns through better communication and outreach measures. This will include a financial crime conference planned for the Autumn of 2016. The FCA also comment upon de-risking and described the measures it is and plans to undertake to address this. In light of the issues where opportunities for improvement exist, the FCA intends to take steps in order to try and achieve:

Greater efficiency in how money laundering risks are identified to ensure that compliance resources are focused upon customers who present the highest risk of money laundering or terrorist financing

More accurate focus of its supervisory work on those firms and sectors presenting the highest financial crime risk by using the information from its new AML data return.

Fostering of innovation and reducing AML compliance costs by working with the Treasury and the Joint Money Laundering Steering Group to ensure that the transposition of the Fourth EU Anti-Money Laundering Directive into UK law allows the use of digital identification.

Promotion and research of innovations in technology to improve, speed up and reduce the cost of AML compliance

Greater global regulatory consistency around AML by working with bodies such as the Financial Action Task Force (FATF) and the Financial Stability Board

Better communication by banks with customers when exiting or rejecting banking relationships, and to see what more can be done to help customers in this situation; and

Greater effectiveness of AML supervision by working with the Government and other UK AML supervisors across all regulated sectors on how AML supervision can be made more consistent and effective.

On top of all of this, the FCA will be continuing its work with the Treasury and other bodies to prepare for the next FATF evaluation of the UK, scheduled to take place in late 2017 and early 2018.

Conclusion

This last year has seen an increasing interest at both the national and international level to tackle financial crime. Tax evasion and avoidance, bribery and corruption, terrorist financing and cybercrime coupled with Fintech and Regtech developments, electronic verification, the fourth anti-money laundering directive and its hotly anticipated guidelines, make for a busy work sheet for the FCA.

Perhaps most importantly, the FCA’s plans for the next year reflect an acknowledgement that the time has come for the regulator to find a way for it to collaborate with industry to find a way work “smarter not harder” to tackle financial crime and mitigate the possible negative impact for customers.